Egypt Index Drops to 2 Month Low as Court Disputes Irk Investors

Egypt’s benchmark stock index slumped to the lowest level in two months, leading declines in Middle East markets, on concern the government isn’t doing enough to resolve disputes with investors.

Orascom Construction Industries, Egypt’s largest publicly traded company, decreased 2.4 percent. Property developer Talaat Moustafa Group (TMGH) declined to the lowest level since August. The EGX 30 Index lost 2.2 percent to 5,449.37, the lowest since Sept. 2, at the close in Cairo.

The North African country’s measure, the world’s best performer this year, fell 2.2 percent last month, the first such drop since May, in selling partly triggered by uncertainty over the status of government contracts with companies. The country’s Administrative Court ruled last week that an 18 year-old agreement that allowed Centamin Plc. (CEY) to extract gold in Egypt was invalid. Centamin shares tumbled 38 percent last week in London trading.

“The recent contradicting statements by the government regarding current disputes with companies is weighing on sentiment,” said Wafik Dawood, director of institutional sales at Cairo-based Mega Investments Securities.

Dawood said the “main overhang” in the market has been President Mohamed Mursi’s Oct. 6 speech, in which he said the government is seeking to recover money it’s owed by companies he didn’t name. Mursi mentioned specific cases that led investors to speculate he was referring to companies including Orascom Construction Industries and Talaat Moustafa.

Contract Disputes

Orascom Construction Industries was indirectly accused in the speech of avoiding tax on the 8.8 billion-euros ($11.3 billion) sale of its cement unit to Lafarge SA (LG) in 2007, two months after listing it on the Cairo stock exchange. The company, which has said the profit is exempted from tax under Egyptian law, is holding talks with tax authorities. Orascom Construction declined to 248.64 Egyptian pounds, the lowest since July 25.

Talaat Moustafa faces a court hearing on Nov. 7 over land it purchased from the government for a real estate project on the outskirts of Cairo. Shares of Talaat, the largest publicly traded property developer in Egypt, dropped 3 percent to 4.51 pounds, the lowest close since Aug. 22.

Centamin said last week that operations are continuing normally and it plans to appeal. Prime Minister Hisham Qandil’s government has said it will respect previously signed agreements with investors.

Elsewhere in the Middle East, the DFM General Index (DFMGI) fell 0.3 percent. Abu Dhabi’s index slipped 0.2 percent and the Bloomberg GCC 200 Index (BGCC200) dropped 0.1 percent. Qatar’s benchmark retreated 0.5 percent and Kuwait’s gauge lost 0.1 percent.

Oman’s MSM30 Index (MSM30) advanced 0.3 percent, Bahrain’s measure rose 0.1 percent and Saudi Arabia’s Tadawul All Share Index (SASEIDX) added 0.2 percent.

Israel’s TA-25 index fell 0.2 percent at the 4:30 p.m. close in Tel Aviv. The yield on the country’s 5.5 percent notes due January 2022 rose one basis point, or 0.01 of a percentage point, to 3.98 percent.

To contact the reporters on this story: Zahra Hankir in Dubai at zhankir@bloomberg.net; Ahmed A. Namatalla in Cairo at anamatalla@bloomberg.net

To contact the editor responsible for this story: Alaa Shahine at asalha@bloomberg.net

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